Georgia puts tax lien on 'real housewife of Atlanta'

A lien has been filed against Atlanta-area celebrity NeNe Leakes. The lien is apparently for almost $100,000 in unpaid state income taxes. This comes after receiving a much larger federal tax lien. From the Daily Mail:

EXCLUSIVE: Real Housewives of Atlanta star NeNe Leakes hit with ANOTHER tax lien and now owes almost $1 million in back taxes - as IRS threatens to seize her assets

• Former Real Housewives of Atlanta star NeNe Leakes was hit with a state tax lien on September 22 in Georgia court She is accused of refusing to pay a total of $95,232.92 in 2014 state taxes 
• The lien comes after she was hit with a $824,366.01 federal tax lien in July for refusing to pay federal back taxes for 2014 Leakes appeared on the 18th season of Dancing with the Stars - where she placed seventh
• That same year, she announced the launch of The NeNe Leakes Collection on the Home Shopping Network
• If she does not pay her debt soon, the Georgia Department of Revenue will also begin the process of seizing her assets and property

Former Real Housewives of Atlanta star NeNe Leakes' financial troubles continue to worsen as she was hit with a second tax lien in four months - this time for nearly $100,000.

Leakes, whose real name is Linnethia Monique Leakes, was hit with a state tax lien from the Georgia Department of Revenue for $95,232.92 on September 22 over unpaid taxes from 2014.

In July, the federal government also hit the 48-year-old reality star with a tax lien, threatening to seize her assets if she didn’t pay $824,366.01 in back federal taxes from the same year.

The state tax lien that was filed in September shows that Leakes originally owed $58,458, but it has grown with interest ($9,715.71), penalties ($15,317.61), collection fees ($11,691.60) and other costs.

If she does not pay her debt soon, the Department of Revenue will begin the process of seizing her assets and property.

The federal and state liens still remain active, meaning she has yet to pay off her debt...

Review of helpful book on tax lien and deed investing

The Complete Guide to Investing in Real Estate Tax Liens & Deeds, Revised Second Edition (2015) by Alan Northcott is a how-to guide for people interested in investing in tax sale and tax lien properties. Northcott, a tax sale investor himself, shows how liens, tax deeds, and tax sales work in different states and local jurisdictions. The book provides many tables and charts allowing investors to compare redemption periods by state and the variety of premiums associated with redemption, in other words, the different potential returns on investment (ROI). These charts allow investors to make more informed decisions about which jurisdictions best suit the individual investor’s needs.

As a property tax administrator, I felt that the book was also helpful to put our own practices as a municipality into a broader context. For example, I did not realize than many jurisdictions require investors to register before they can bid at tax sales. Also, I did not fully realize that some states are “tax lien” states, meaning that they authorize local governments only to sell tax liens, not the underlying deed, while other states are pure “tax deed” states, where ownership immediately transfers from the delinquent owner to the successful bidder after a tax sale. The book describes Georgia as one of 11 “hybrid tax deed” states, where ownership is transferred if the original owner does not redeem the property within the required time period. I also found it useful to see which states are most closely aligned with Georgia’s practices. Tennessee appears to share several traits with Georgia’s delinquent collections and tax sale law. This information could be helpful when building peer relationships in other states. In property tax world, opportunities for networking and professional development exist within states, but not usually across state lines since there is no national property tax.

One aspect of the book I didn’t agree with was its assertion that most property owners who lose their properties at tax sales redeem their property, resulting in predictable returns on investment for tax lien and tax deed investors. In my experience in our location, that is not the case. To illustrate, picture a property owner who cannot pay $5,000 in back taxes. The property is auctioned at a tax sale for $100,000. The redemption amount in Georgia would be $120,000. The original owner receives the excess funds from the sale minus the taxes ($95,000). Now the original owner is $25,000 short from the redemption price. If the owner couldn’t come up with $5,000 to prevent the tax sale in the first place, the owner will rarely be able to come up with $25,000 to redeem their property. Northcott’s statement may be correct in the context of states with smaller premiums, but investors should be aware of that may not be the case everywhere.

An unexpected bonus about 85 percent of the way into the book is a very helpful chart and explanation of “first liens.” In order to foreclose the right to redeem on a property, the holder of a “second tax lien” has to pay off the first lien. Somebody with a third lien would have to pay off the first and second liens. Mortgages and other private debts constitute lesser liens than tax liens. Lesser precedent liens and mortgages do not have to be paid off in order for the holder of a first lien to foreclose the right to redeem. This is an essential concept to understand in Georgia, where case law has indicated that a creditor who redeems a property previously sold at a tax sale obtains a first lien or “super lien” that trumps other liens.

I recommend this book to people considering tax sale investments and to property tax professionals involved with delinquent collections.

Super liens under scrutiny

WSB recently reported on the potential for abuse in the “super lien” process for foreclosing on tax delinquent properties sooner than state law normally allows.

If a property in Georgia becomes severely delinquent in taxes, the typical process is for the tax authority to bring the property for tax sale. During the sale, the minimum bid is the amount of taxes that are owed, and the bidding can go higher than that. The original owner may apply for the excess funds (the amount that was bid at sale in excess of the taxes owed), and the owner has a year in which he or she can redeem the property for the full amount bid plus a 20 percent premium. If the prior owner does not redeem the debt, the tax sale buyer can foreclose the right to redeem.

Due to the Georgia Supreme Court’s ruling in National Tax Funding v. Harpagon several years ago, an alternate method has been established in which foreclosure can occur by a third party earlier than the one year norm. This third party is another lienholder, such as a person or company that holds a medical lien or home maintenance lien on the same person who owned the property sold at tax auction. This lienholder or creditor is entitled to redeem the property. Once they have redeemed it, they are said to possess a “first lien” or “super lien” on the process. They are able to bar any further right to redeem by initiating foreclosure immediately.

Supporters of super liens say that they can be used to restore properties to tax-generating status faster. Critics say it harms the original owner’s ability to redeem the property themselves.

As tax collector for Decatur, we had a difficult situation where a tax sale buyer asserted that they did not have to pay delinquent city taxes because they had acquired a super lien by redeeming a property that had become delinquent in county taxes. Although super liens can help somebody who holds a secondary lien, one of my concerns is that other lien holders (including city governments) will not be made whole if there are not sufficient excess funds at sale.

There is definitely room for improvement and reform in the aftermath of Harpagon. WSB reports that Rep. Turner (R-Holly Springs) is advocating for legislation which would extend the redemption period to almost two years. Whether his proposal strikes the right balance remains to be seen.

Consumer advocates seek tax sale reforms

I recently came across a report from National Consumer Law Center that examined into property tax sales nationwide.  The NCLC described these sales over the past few years as a foreclosure crisis on par with the mortgage foreclosure crisis.  Their report is a bit dated now, but their findings are still relevant for review:

Overview All states have laws that permit local governments to sell property through a tax lien foreclosure process if the owner falls behind on property taxes or other municipal charges.

A tax lien sale may be started over nonpayment of a tax bill of only a few hundred dollars. A $200,000 home may be sold at a tax lien sale for $1,200 and then quickly resold for a huge profit.

Homeowners may lose not only a homestead but also hundreds of thousands of dollars in equity. This equity may represent their sole savings and security for retirement. As a result, foreclosures related to tax lien sales may destabilize entire communities.

Scope of Problem

• $15 Billion and Counting: As homeowners navigate a difficult job market, declining home values, and high foreclosure rates, property tax delinquencies are increasing. Annual tax lien sales are now approximately $15 billion nationwide, according to the National Tax Lien Association.

• Outdated Laws: Very few states have enacted procedures to protect owners' equity interests or to avoid windfalls to purchasers, and states rarely update tax lien laws to reflect current economic conditions or to ensure that proper safeguards exist to avoid unnecessary loss of homeownership. 

• Elderly and Disabled Most at Risk: Homeowners most at risk are those who have fallen into default because they are incapable of managing their financial affairs, such as individuals suffering from Alzheimer's, dementia, or other cognitive disorders. One government study also found that in 2011 property tax foreclosures in New York City were highly concentrated among low-income communities with large African American and Latino populations, groups also targeted by subprime lenders. 

• Wall Street Reaps Huge Profits: Individual tax sale purchasers and some of the same companies (Bank of America and JPMorgan Chase) are ramping up lucrative profit centers. Why? Buying tax liens can yield an incredible rate of return, up to 50%. Many state laws also permit tax lien purchasers to charge homeowners extremely high interest rates and fees to redeem their property and avoid foreclosure.

Key RecommendationsThe following recommendations reflect the goals of preserving homeownership and ensuring prompt payment of local taxes.

State Recommendations

• Make redemption costs affordable by keeping investor profits reasonable. State laws should be reformed to limit the maximum interest or penalty rate on redemption amounts to reflect current economic conditions. The interest rate should seek to discourage speculation and promote redemption. 

• Place reasonable limitations on additional fees and costs. States should not permit investors to pad their profits by charging homeowners unreasonable fees to redeem after the foreclosure process has been initiated. State law should establish a maximum fee schedule based on reasonable, market rates for title searches, attorneys' fees, and other fees. 

• Establish a tax sale procedure, with court supervision. States should limit the initial tax sale to the sale of a tax lien certificate, rather than granting an entire interest in the property to a purchaser. If a homeowner fails to redeem the property, state law should require the purchaser to seek a court order authorizing final sale of the property. The court should confirm the final sale results and ensure that the sale price is fair and that any surplus funds are promptly paid to the homeowner. 

Recommendations for Cities and Towns

• Implement redemption payment programs. Local tax offices should collect redemption payments to eliminate the possibility that an unscrupulous purchaser may thwart the owner's attempt to redeem. The local tax office should accept partial and installment payments. 

• Adequate notice should be given at every stage of the tax sale process. Notifications should be used as a tool to avoid loss of homeownership Comprehensive notices should use plain language; include information about tax exemptions, abatements, and repayment plans; and note the consequences of each stage of the tax sale process. 

• Provide detailed notice of redemption rights. The notice should give all of the essential details on how the redemption right can be exercised, including the name and address to which the homeowner can remit payment; itemized costs; and the deadline for the redemption payment.

Georgia law provides for a redemption amount of 120 percent paid by the property owner to the tax sale purchaser. My office will take a look at the proposals made here for cities. That being said, at least since 2008 if not much earlier up to the present, Decatur hasn’t had to auction off owner-occupied homes. Normally our tax sales involve vacant or unbuildable lots. We seldom get questions about redemption because usually the owner has decided to “walk away” from the property. The 120 percent redemption amount probably is a big hurdle for owners who weren’t able to pay their taxes in the first place.

Property tax proposals to watch before the General Assembly adjourns

Dozens of property tax, sales tax, and motor vehicle tax proposals were introduced in the Georgia General Assembly during this legislative session. Only a few have survived as we near the last final days of the legislative session. These property tax and delinquent collections bills have been passed by at least one chamber of the General Assembly already, and will become law if approved by the other chamber over the next week and signed by the governor afterward. Several of the measures are intended to provide more fairness to taxpayers, but there’s not an overall theme to the legislation. Unlike tax proposals during the last couple legislative sessions, most of these bills are pretty narrow in scope. A brief description of each bill follows along with my own thoughts on how these may affect Decatur.

HB 69—Allows for the collection of homeowner, condominium owner, or other property owner association dues in the redemption price after a tax sale.
What this means is that if Decatur (or any other city or county) sells a property during a tax sale, the original owner still has a year to pay to redeem the property from the tax sale purchaser, but would now also be required to pay off any dues paid toward the property between the tax sale and the redemption date as part of the total redemption amount.

HB 412—Authorizes tax officials to provide electronic billing for property tax bills and delinquent notices and adds certain e-billing standards.
Some county tax commissioners in Georgia, such as Walker County, are already providing taxpayers the ability to “go paperless.” This bill puts certain standards in place for tax e-billing, including putting the words “STATUTORY ELECTRONIC SERVICE” in the subject line of emails. As Decatur considers launching e-billing during FY14-15, we would need to adhere to this standard if approved.

HB 819—Requires tax officials to carry out further due diligence steps to contact a delinquent taxpayer prior to transferring a tax execution (lien).
Before a tax execution could be transferred, the tax official must conduct a due diligence search using phone directories or Internet databases to identify the property owner’s most current contact information. The City of Decatur does not sell or transfer liens like Fulton County does, so this bill would have little impact here. Nevertheless, more thorough due diligence searches are in the interests of everybody, because it ultimately helps reduce the number of severely delinquent accounts.

HB 954—Adds some criteria to the calculation of fair market value by tax assessors such as whether the property is rent controlled or otherwise eligible for income tax credits.
This could have some affect on DeKalb’s assessments of certain multi-family housing units.

SB 293—Creates a misdemeanor charge and $1,000 fine against anybody at the board of tax assessors who fails to provide certain information requested by taxpayers regarding their assessment. The bill also expands the definition of distressed properties that could further reduce assessed property values in their vicinity.
This is the first bill I’m aware of that would impose individual fines and penalties on tax assessors. The intent is probably to assist taxpayers during the appeal process. Decatur does not assess property values but this legislation would affect the DeKalb assessors and local taxpayers seeking information from them.

SR 783—Provides for a referendum to amend the state constitution to stop the state from levying any property taxes.
The state portion of your property tax bill has undergone a gradual, legislative decrease since 2010 and will no longer be levied at all by 2016. This resolution would make the phase-out moot by prohibiting state property taxes in the constitution. This would not affect your city tax bill either way, because the state always collected its portion with the county billing. You would see a slight decrease (a few dollars) in your county bill either way since the state portion has already been phased out.

HB 390 pertains to sales taxes in DeKalb County for transportation projects.

HB 69, 412, 819, and 954 passed unanimously or near unanimously in the House, while SB 293, SR 783, and HB 390 each have opposition.

Buying properties at tax sales

A few items have popped up on the web recently about buying tax lien property in Georgia. The message board of auctions.org shows this unfair but entertaining exchange on May 15:

Q: I live in Ga. Does anyone know the process for acquiring tax lien property? The vacant lot next to me is going up for auction the first week in May because the owner has not paid his property taxes. Is it true that if I win the property through the bidding process, that the owner has at least a year in order to try and get the property returned to him?

A 1: loslunas87031 says:

have you ever been to a tax auction ? Its a zoo of idiots who watch too many late night tv infomercials, run the bids past market value and then realize they do not automatically own the property and the owner has up to several years to pay the tax and recover it.

A2: acermill says:

Yes, it is quite true. Georgia offers a one year redemption period for the delinquent taxpayer after the tax lien sale/auction. The delinquent payer need only pay the tax delinquent, plus a 20% penalty, and the ownership reverts to the original owner.

That conversation highlights the risks of buying properties at tax sale, but on May 22, http://www.financemoz.com/tax-liens-vs-tax-deeds-which-is-the-best-investment.html described the potential benefits:

If you are interested in either owning the property or getting a very good return on your investment and you live in or near a redeemable deed state, than you should consider investing in redeemable deeds. Redeemable deeds are kind of in-between tax liens and tax deeds. You purchase the tax deed at the sale, but there is a redemption period in which the previous owner can come back and redeem the deed from you. They have to pay a pretty hefty penalty in most redeemable deed states in order to do so, and the penalty is on the total amount that you bid at the sale. In Texas the penalty is 25% and in Georgia it’s 20%. Not a bad rate of return!

It should be kept in mind that whether it’s a good or bad investment, ultimately tax sales are unfortunate events. They signify that for whatever reason, somebody is in jeopardy of losing their own property, investment, or even their own home because they couldn’t pay the taxes.